Market Drivers for March 05, 2015
Europe and Asia
AUD: Retail Sales 0.4% vs. 0.4%
EUR: Retail PMI 46.4 vs. 46.6
North America
EUR: ECB Rate 07:45
EUR: ECB Presser 08:30
USD: Weekly Jobless
CAD: Ivey PMI
As the market waited for Mario Draghi in order to get more info on the ECB's planned QE program, the dollar continued to strengthen in Asian and early European trade with the kiwi hit the hardest as RBNZ announced fresh measures to curb the housing bubble.
The RBNZ is mulling new rules to define mortgage loans for residential property as it tries to isolate and curb speculative investing by creating a separate class of properties that are not owner occupied. The move is all part of the new macro-prudential policy to contain the speculative excess in the New Zealand housing market while still keeping credit affordable to those who want to purchase a home for residence rather than investment purposes.
The market took the new measures to mean that the RBNZ would not use interest rate policy to control credit, with traders tempering any expectation that the New Zealand central bank would hike rates further. News that Chinese GDP this year may come in under the 7.5% mark also hurt the kiwi as the pair drifted lower all night long, finding a modicum of support ahead of the 7500 level.
As for the EUR/USD, the pair continued to move lower, tripping stops at the 1.1050 mark as traders continue to liquidate the unit on the growing divergence between the US and EZ monetary policies. The market will be keen to know several key details about the implementation of the QE program, specifically ways the ECB plans to control the amounts of buying of each member's sovereign debt, along with even a more basic question as to whether the EZ fixed income market could absorb 60 Billion of monthly demand from the ECB without major price distortions.
While Mr. Draghi could address the various arcana of the program, the market may already be doing most of the heavy lifting for him as the decline in the exchange rate could be far more stimulative for the EZ than any amount of QE. With the theme of divergence clearly established in the market's eye, the pressure on the EUR/USD could continue, especially if Mr. Draghi reinforces the aggressive nature of the QE program. The pair could test the psychologically key 1.1100 level as the day proceeds.